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The history that made Scots prosper

By Neil Macdonald

Updated on 13 November 2007

People who live north of Hadrian's wall get more than £1000 of extra government money spent on their public services.

But why? The finger traditionally points to a formula devised in the 1970s, the infamous Barnett formula.

But in fact, the rule dates back more than a century. And the Barnett formula may in fact be cutting the Scots' financial advantage.

The obscure rule was designed by Joel (now Lord) Barnett - Labour's Chief Secretary to the Treasury in 1978. But it wasn't designed to control the total amount of public spending that Scotland or Wales received.

Instead, it was intended to share out any increase in public spending.

If more was spent in England, then Scotland and Wales would automatically receive a similar amount, related to their population.

'...for every £80 spent in England and Wales, Scotland would receive £11.'

In fact, if anything, the Barnett Formula would tend to narrow the gap between the nations.

If any of the increase in spending could be regarded as UK-wide, then that element would not be included in the increases handed out to Scotland and Wales. This was known as the "Barnett squeeze".

According to Professor Ian McLean of Oxford University, the origins of Scotland's relatively high levels of public spending can be traced to the policies of a now largely forgotten Chancellor, George (later Viscount) Goschen.

In the 1880s, there was a growing campaign for Irish independence, which saw the Liberal Prime Minister, Gladstone, propose a measure of Home Rule.

Goschen was a Liberal, but opposed Home Rule, so he defected to the Conservatives and became their Chancellor in 1887.

The Conservatives opposed Home Rule for Ireland partly because they feared it might also spread to Scotland. Goschen, as Chancellor, came up with a rule designed to push money towards Ireland and Scotland in a bid to buy off independence.

The policy was known as "killing Home Rule by kindness" - a policy that ultimately failed in Ireland.

But in Scotland, the so-called "Goschen Proportion" helped boost public spending. Scotland was to receive a fixed share of public spending - for every £80 spent in England and Wales, Scotland would receive £11.

But as Scotland's population dropped below 11/80ths of the population of England and Wales - and continued to fall from 1900 to the 1970s - the Scottish effectively benefited from an extra spending allocation.

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